Reported net income of GG Company

P 45,000
Reported gain on sale of equipment
P15,000
Intercompany profit realized in 20x6
(5,000)
(10,000)
Realized net income of GG Company
P 35,000
Proportion of stock held by
non-controlling interest
x .40
Income assigned to non-controlling interests
P 14,000
40.
c
Operating income reported by TLK Corporation
P 85,000
Net income reported by GG Company
45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000)
(10,000)
Consolidated net income
P120,000
41. b
Eliminating entries:
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment
10,000
Gain
150,000
Accumulated depreciation
160,000
Parent Books – Mortar Subsidiary Books – Granite
Cash
390,000
Equipment
390,000
Accumulated depreciation
160,000
Cash
390,000
Equipment
400,000
Gain
150,000
Mortar
Selling price
P390,000
Less: Book value, 12/31/20x5
Cost, 1/1/20x2
P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years
160,000
240,000
Unrealized gain on sale of equipment
P 150,000
Realized gain – depreciation: P150,000/6 years
P 25,000
42. a – refer to No. 41 for computation
43. b - refer to No. 41 for computation
44. d
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation
25,000
Depreciation expense
25,000
P150,000 / 6 years or P65,000 – P40,000
“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
Depreciation expense
(P400,000 / 10 years)
40,000
Depreciation expense
(P390,000 / 6 years)
65,000
Acc. Depreciation
40,000
Acc. depreciation
65,000
45. c
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Equipment
10,000
Retained earnings (150,000 – 25,000)
100,000
Accumulated depreciation (P160,000 – P25,000)
135,000
46. a
Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000
Unconfirmed gain after three years = 2/5 x P650,000 = P260,000
47. d
Depreciation to 1/1/x3 is P25,000
Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year
Therefore accumulated depreciation at 12/31/x4 is P45,000.
Net equipment balance is P85,000 - P45,000 = P40,000.
48. b
At the end of two years, the subsidiary reports the equipment at original cost of P2,500,000 and
accumulated depreciation of (P2,500,000/10) x 2 = P500,000. Depreciation expense is
P250,000.
The consolidated balance sheet reports the equipment at original cost of P1,000,000 and
accumulated depreciation of P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000.
Depreciation expense is P80,000.
Eliminating entries at the end of the second year are:
Accumulated depreciation
170,000
Investment in subsidiary
1,530,000
Equipment
1,700,000
Equipment
200,000
Accumulated depreciation
200,000
Accumulated depreciation
170,000
Depreciation expense
170,000
49. d
50. d
The subsidiary reports depreciation expense for the year at P500,000 (P2,500,000/5) and a gain
on the sale at P1,750,000 [P2,750,000 - ((P2,500,000 - (3)(P500,000))]. The consolidated
statements show depreciation expense for the year at P600,000 (P3,000,000/5) and a gain on
the sale at P1,550,000 [P2,750,000 - ((P3,000,000 - (3)(P600,000))]. Therefore the eliminating
entries increase depreciation expense by P100,000 and reduce the gain by P200,000, for a net
effect on consolidated income of: P300,000 decrease.
51. a
Consolidated Net Income for 20x9
P Company’s net income from own/separate operations………….
P 140,000
Realized gain on sale of equipment (downstream sales) through depreciation
___0
P Company’s realized net income from separate operations*…….…..
P 140,000
S Company’s net income from own operations………………………………….
P 30,000
Unrealized loss on sale of equipment (upstream sales)
20,000
Realized loss on sale of equipment (upstream sales) through depreciation –
none, since the date of sale is end of the year
( 0)
S Company’s realized net income from separate operations*…….…..
P 50,000
50,000
Total
P190,000
Less: Amortization of allocated excess……………………
0
Consolidated Net Income for 20x9
P190,000
Less: Non-controlling Interest in Net Income* *
15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x9…………..
P175,000
*that has been realized in transactions with third parties.
Selling price
P180,000
Less: Book value, 12/31/20x9
Cost, 1/1/20x4
P500,000
Less: Accumulated depreciation : P500,000/10 yearsof events and transactions of which the
auditor
became aware and that occurred up to that date.
C. To emphasize completeness assertion.
D. To inform the users of the financial statements
that the auditor complied with the applicable
Philippine Standards on Auditing.
38. How is the auditor’s report on the financial
statements that require final approval by
stockholders before such financial statements are
issued publicly dated?
A. The auditor’s report should be dated
coinciding the date of approval of the financial
statements by the stockholders.
B. The auditor’s report should be dated after the
approval of the financial statements by the
stockholders.
C. The date of the auditor’s report coincides the
date of approval of the financial statements by the
board of directors.
151
D. The audit report should be dual dated, the
first date coinciding the approval by the board of
directors and the second date to coincide with the
approval by the stockholders.
39. The auditor’s address is indicated in the auditor’s
report by:
A. naming the location in the country where the
auditor practices his profession.
B. including the complete mailing address of the
auditor.
C. identifying the country from where the
auditor had secured his professional license.
D. the auditor’s address is omitted in the report.
40. Which of the following is ordinarily true of a
modification of the audit report by adding an
emphasis of matter paragraph?
A. The modification by adding an emphasis of
matter paragraph is an “except for” qualification
of opinion.
B. The emphasis of matter paragraph is a
“subject to” qualification of opinion.
C. The emphasis of matter paragraph would
ordinarily refer to the fact that the auditor’s
opinion is not qualified.
D. The emphasis of matter paragraph is
presented before the opinion paragraph.
41. When additional language is added to the auditor's
report without modifying the opinion, the additional
language should be included in:
A. the introductory paragraph.
B. the scope paragraph.
C. the opinion paragraph.
152
D. one or more additional paragraphs that follow the
opinion paragraph.
42. Which of the following statements is not true?
A. A one-paragraph report is generally used when
the auditor is not independent.
B. A modification of the audit report that involves
modified wordings may contain an unqualified
opinion.
C. An addition of another paragraph to an otherwise
standard audit report always requires a
modification of an unqualified opinion.
D. An unqualified opinion may be issued though the
audit report requires an additional explanatory
paragraph.
43. An auditor includes a separate paragraph in an
otherwise unmodified report to emphasize that the
entity being reported on had significant transactions
with related parties. The inclusion of this separate
paragraph
A. is considered an “except for” qualification of the
opinion.
B. violates generally accepted auditing standards if
this information is already disclosed in the
footnotes to the financial statements.
C. necessitates a revision of the opinion paragraph
to include the phrase “with the foregoing
explanation.”
D. is appropriate and would not negate the
unqualified opinion.
44. An auditor concludes that there is substantial doubt
about an entity’s ability to continue as a going
concern for a reasonable period of time. If the
153
entity’s disclosures concerning this matter are
adequate, the audit report should include a(an)
Adverse opinion “Except for” qualified
opinion
A. Yes Yes
B. No No
C. No Yes
D. Yes No
45. Under certain circumstances, the CPA may wish to
emphasize specific matters regarding the financial
statements even though he or she intends to express
an unqualified opinion. Normally, such an
explanatory information should be included in
A. the introductory paragraph.
B. a separate paragraph following the opinion
paragraph in the report.
C. the opinion paragraph.
D. A separate paragraph preceding the opinion
paragraph.
46. Salmon Company’s financial statements adequately
disclose uncertainties that concern future events, the
outcome of which cannot reasonably be estimated.
The auditor’s report should include a(an)
A. unqualified opinion
B. “except for” qualified opinion
C. “subject to” qualified opinion
D. adverse opinion
47. The paragraphs of the report which is